TWO years after the end of the first world war, America passed the Jones Act. This restricted the shipping of goods between home ports to American-owned vessels. The war had convinced lawmakers of the need to foster a home-grown fleet for use in times of conflict or national emergency. In 1944, while a more modern war still raged in Europe, governments meeting in Chicago took inspiration from the Jones Act while laying down the regulations that would govern international air transport. These were crafted to safeguard the vital strategic role of each country's “flag carrying” national airline.
On Monday November 14th, a new round of “open skies” negotiations is set to begin between Europe and America. This is the latest in a series of attempts in recent years to unpick the anti-competitive measures that were put in place in Chicago. For decades, arcane rules on routes and frequencies have distorted the market for aviation. And restrictions on foreign ownership of airlines, in the name of national security, have prevented the competition that has preserved the vitality of other industries.
Airlines have traditionally sucked up government money and disappointed investors. And now many of America's leading carriers are dependent on Chapter 11 bankruptcy protection, while many of Europe's flag carriers do little better than break even. But as passenger numbers have increased over the years, a few, such as British Airways (BA), have made handy profits since their release from state control. And a whole squadron of low-cost airlines is prospering, despite the industry's regulatory thicket.
Economist.com via NewsEdge Corporation :
At a domestic level, both America and Europe have already relaxed their grip. America began the process of liberalisation in 1978, opening up the market for flights within the country. New, low-cost airlines flying passengers at rates set by the market proliferated. Europe had to wait until 1997 for deregulation. The results were similar: a plethora of low-cost airlines began flying customers cheaply all over the European Union (EU). At last count, Europe boosted some 50 no-frills airlines.
America's commitment to more flexible flying also extends to a series of bilateral deals with some European countries and a host of other destinations. America now has arrangements with 72 countries. These allow its carriers to fly from anywhere in the United States to destinations in the other country in return for allowing that country's carriers direct flights to more American airports. And big European carriers have been permitted to forge close flight- and revenue-pooling alliances with American partners.
As a result of this creeping liberalisation, airlines have been able to carry passengers more efficiently, which has brought down fares. So many may wonder why the negotiators meeting next week do not immediately throw transatlantic skies open to the full forces of competition. After all, the European Commission, the EU's Brussels-based executive, estimates that full liberalisation could boost transatlantic passenger numbers by up to 11m a year, a 24% increase on routes that currently generate annual revenues of $18 billion.
After a court ruling in 2002, the European Commission wrested negotiating rights on aviation from the EU's individual member states, raising hopes that efforts at liberalisation would gather pace and that the collection of bilateral deals between member states and America would give way to a more comprehensive opening of the skies over the Atlantic. Direct talks between Brussels and Washington began soon after the commission won negotiating power but broke down last June, largely because of British opposition.
Rights and wrongs
The 'Open Skies' deal would replace a web of bilateral deals between Washington and EU governments - which regulate trans-Atlantic air traffic - with a single EU-U.S. deal.
A leading campaigner for airport expansion in the UK has warned that regional flights from Heathrow face the axe if controls on airlines flying between Britain and the US are lifted.
Airlines can fly from anywhere in USA to anywhere in Europe.
AFL-CIO says the tentative approval of Virgin America's startup represents a move toward more foreign involvement in U.S. airlines, something that would harm unionized workers.